Your obligations and the impact on your tax return

Certain PIEs will ask you for your prescribed investor rate (PIR) and IRD number and should tell you the date that they need them by.

You must give the PIE the PIR that applies to your investment as well as your IRD number.

Giving the wrong PIR to your PIE

If ...

then ...

Note ...

you realise that you have given the PIE the wrong PIR

you should tell them the correct rate as soon as possible.

If the PIE has not done their tax calculation for the period (quarter or annual), they may be able to adjust it for the correct amount of tax.

the PIE cannot adjust for the correct rate, and there has been an under-deduction

you will need to file a tax return to account for the under-deduction.

Shortfall penalties may apply.

you have used a rate higher than your correct rate and the PIE has already calculated the tax on your investment for the period

it will be a final tax.

There won't be any refund for over-deductions.

Including the income in your tax return if a default PIR has been applied

If the default PIR of 28% has been applied but you should have had a PIR of ...

then you ...

Note

10.5 or 17.5%

cannot include the income in your income tax return to get a refund of the balance.

0%

are correctly a zero-rated investor and your attributed income must be included in your tax return.

Include the tax calculated at 28% by the PIE in your tax return. If the PIE has attributed a loss to you and incorrectly given you a tax credit for the loss, you will need to include a note in the return so that we can ensure your return is assessed accordingly.

Trusts

If a trustee chooses a 0% PIR or has the 28% default rate applied

In this case there will be impacts for the trust's provisional tax and potentially for the beneficiaries.

The PIE income will be taxable in the trust return.

If you treat the income as beneficiary income then you calculate the tax at the beneficiaries' tax rate.

It may be difficult to treat this income as beneficiary income if there is no cash distribution made by the PIE.

Generally the level of tax credits associated with the income will be lower than when the income was a dividend from your investment fund. This may place the trust in the position of having residual income tax greater than $2,500 and make you:

liable to provisional tax, and

potentially liable to use-of-money interest and penalties.

See the example below.

If a trustee chooses a 28% PIR

In this case, the PIE income is excluded income and does not need to be included in either the trust or beneficiaries' taxable income in their tax returns.

See the example below.

If a trustee correctly chooses a 10.5% or 17.5% PIR

The attributed income needs to be included in the trust's tax return along with the tax paid at the PIR.

If the PIE attributes a loss the details cannot be included in the return - the tax credited to you by the PIE will be a final tax.

The trustee may choose the 17.5% PIR so that they do not have a provisional tax liability when the income is treated as beneficiary income.

Note

Only trustees of testamentary trusts can choose 10.5%.

Example of PIE tax treatment for each rate

Step

28%

17.5%

10.5%

0%

Income received from the PIE is

$10,000

$10,000

$10,000

$10,000

Tax credits attached to the income are

$500

$500

$500

$500

Tax paid by the PIE is

$2,300

$1,250

$550

$0

Total tax attached

$2,800

$1,750

$1,050

$500

The trustee distributes the income to the beneficiary and chooses a PIR of 28% (not beneficiary income)

If the beneficiary's personal tax rate is ...

then the tax payable is not included in the return and the net tax payable is ...

so the net result for beneficiaries is ...

33%

nil

$500

30%

nil

$200

17.5%

nil

-$1,050

10.5%

nil

-$1,750

The trustee allocates the income to the beneficiary and chooses a PIR of 0%

If the beneficiary's personal tax rate for 2012 is ...

then the tax payable is ...

less the tax paid by the PIE ...

so the net tax payable is ...

33%

$3,300

$500

$2,800

30%

$3,000

$500

$2,500

17.5%

$1,750

$500

$1,250

10.5%

$1,050

$500

$550

In this case the trust would end up with a provisional tax liability for the $2,800 scenario.

The trustee allocates the income to the beneficiary and chooses a PIR of 17.5%

If the beneficiary's personal tax rate for 2012 is ...

then the tax payable is ...

less the tax paid by the PIE ...

so the net tax payable is ...

33%

$3,300

$1,750

$1,550

30%

$3,000

$1,750

$1,250

17.5%

$1,750

$1,750

$0

10.5%

$1,050

$1,750

-$700

For each of these scenarios the trust would not have a provisional tax liability.

Non-residents

If you are a non-resident individual, then your PIR is a prescribed rate of 28%. You cannot elect a rate.

Notified foreign investors

To be a notified foreign investor, you need to be a non-resident who:

holds an investment in a foreign investment zero-rate or variable-rate PIE, and

notifies the PIE that you wish to be treated as a notified foreign investor.

The investor must not be:

resident in New Zealand

a CFC

a FIF with an income interest of 10% or more

a non-resident trustee of a trust that is not a foreign trust.

Investor requirement to provide more information

To become a notified foreign investor, the investor must provide the following additional information:

date of birth, if applicable

home address in their country or territory of residence

their equivalent of a IRD number or a declaration that they are unable to provide this number.

Foreign investment zero-rate PIEs

The foreign investment zero-rate PIE will apply the zero rate to attributed PIE income of notified foreign investors. This type of PIE will invest offshore and only hold a minimal amount of investments in New Zealand.

Foreign investment variable-rate PIEs

Foreign investment variable-rate PIEs cater for non-residents who may wish to invest into New Zealand markets or both New Zealand and offshore markets. There is no de minimis for this type of foreign investment PIE and each source and type of income has its own tax rate:

Category

Rate

A dividend derived from a company resident in New Zealand attributed to an investor who does not reside in a country with which New Zealand has a double tax agreement, to the extent it is not fully imputed.

30%

An amount other than an amount referred to in 1, and 3 to 5, that has a source in New Zealand.

28%

A dividend derived from a company resident in New Zealand attributed to an investor who resides in a country which New Zealand has a double tax agreement with, to the extent it is not fully imputed.

15%

Interest derived.

1.44%

A fully-imputed dividend derived from a company resident in New Zealand.

0%

A foreign-sourced amount.

0%

An amount derived under a financial arrangement that has a source in New Zealand other than an amount of interest referred to in 4.